Study: Buffalo finances among worst in US

Analysis finds city is facing huge revenue shortfall. Pandemic is major problem, but bad budgeting also a factor

Only one city in the country is suffering more than Buffalo from the financial devastation of the COVID crisis. And that’s Rochester, just an hour down the Thruway.

A forthcoming study, the source of a New York Times analysis published Monday, projects Buffalo’s government is staring at a 15 to 20 percent shortfall in revenue in the current fiscal year — more than twice the average in the survey of 150 cities nationwide.

Upstate New York’s largest cities — Rochester, Buffalo and Syracuse — were ranked the most fiscally distressed municipalities in the nation. New York City ranked fifth, right behind Detroit. Sun Belt cities including Orlando and New Orleans also scored among the most troubled.

In another sign of distress, the Buffalo Fiscal Stability Authority, the city’s state-imposed financial control board, last month rejected Mayor Byron Brown’s four-year spending plan because of risky revenue assumptions. The board asked the state Legislature for permission to borrow up to $121 million over the next two years to meet looming deficits.

The pandemic has exacerbated the city’s already troubled finances. The Brown administration has consistently overestimated revenues for a decade and closed resulting deficits by tapping reserve accounts. That’s left City Hall without the financial cushion necessary to absorb the blow COVID has dealt to its finances.

In a statement emailed to Investigative Post, Brown noted that Buffalo is especially vulnerable because it relies on sectors of the economy hard hit by the pandemic: healthcare, education, and cultural tourism. The city’s high unemployment and the cuts to state aid further threaten city finances.

“If federal action is not forthcoming in the near future, jobs, services and new investments will have to be reduced and eliminated,” the mayor said. 

The study published by The Times found Buffalo faces a revenue shortfall of between $73 million and $104 million this fiscal year. The mayor’s budget, adopted in June, projects the city will take in $519.6 million.  

That budget relies on $65.1 million in federal aid, which has not been appropriated by Congress. If no federal aid materializes, the city plans to borrow whatever it needs to balance the budget. 

“If there is no federal intervention, these cities are in big trouble,” David Copeland, one of the study’s co-authors, told Investigative Post.

According to Copeland, the analysis took into account city budget projections, as well as county and state spending within the city. The authors then folded in federal Bureau of Labor Statistics projections to measure the impact of unemployment. The methodology, he said, has been developed over years in conjunction with the Lincoln Institute of Land Policy. The report will be published in the September edition of the National Tax Journal.

Buffalo’s projected shortfall is primarily the result in cuts to two of the city’s biggest sources of revenue: 

  • State aid, the city’s single biggest revenue source, has been slashed 20 percent, or $32.5 million, in the current fiscal year. The state’s budget documents do not indicate any intention to restore that funding in years to come.
  • The city’s share of county sales tax, which has grown in recent years, is projected to fall 20.5 percent, or $18.4 million, in the current fiscal year. Sales tax is expected to recover as the local economy continues to reopen, albeit slowly.

The city’s other major source of revenue is the property tax levy, which Mayor Byron Brown has held steady through his 15 years in office. Instead of raising taxes to meet rising expenses, Brown has spent down the city’s reserves by more than $100 million in the past decade. The draw-down on city reserves led to a downgrade in the city’s bond rating last September.

All that’s left in the bank to confront an emergency like the pandemic is a rainy day fund of $39 million.

The rainy day fund could be devoured quickly by the long-term impacts of the pandemic, according to Copeland, the report’s co-author.

“Our projections, under the most severe scenarios, would wipe out even the most careful cities,” Copeland said.

Our Weekly Newsletter

In its July analysis of Brown’s four-year fiscal plan, the control board raised red flags, too. Rejecting the mayor’s four-year plan as “not operationally balanced,” the control board identified $225.5 million in revenue assumptions over four years it characterized as “speculative.” 

That number includes $76.1 million in questionable revenues included in this year’s budget, a number that jibes with the best-case scenario identified by Copeland and his colleagues. Those shaky revenue assumptions include $65.1 million in federal aid that has not been approved by Congress and $11 million in casino revenue share, which the Seneca Nation of Indians stopped paying in 2017.

The control board identified risky revenue assumptions (primarily increased state aid, sales tax growth, and more casino money) of $59.4 million, $41.5 million, and $48.4 million in the years to come. 

Investigative Post financial analyst Ken Kruly broke down the control board’s response, noting it is lobbying the state Legislature for permission to borrow up to $121 million over the next two years to help the city meet its budget shortfalls. That’s on top of the $25 million the city borrowed in June to plug last year’s deficit.

What the control board is not prepared to do is to shift to “hard” status from its current “soft,” or advisory, role. A hard control board can implement cost-cutting measures, including hiring and wage freezes. It can do little to create new revenue streams for the city, however.  

The control board “is not here to replace our elected officials and their decisions, but to work with them and use our expertise to help them in these difficult times,” Fred Floss, a member of the control board and an economist at SUNY Buffalo State, told Investigative Post last month.

“I hope that we will be able to come out of this with aid from the federal and state governments to preserve services and protect our most vulnerable citizens,” Floss said.

Brown, too, has expressed hope the state Legislature will give Buffalo — and Rochester, and Syracuse, and other municipalities in the state — the go-ahead to borrow its way out of the deficits that loom if the federal government doesn’t come to the rescue.

Copeland, the co-author of the forthcoming report, said the data in the analysis date to June. Recent resurgences of the virus — as well as the reopening of schools in cities like Buffalo, where the infection rate has dropped — is likely to change the projections.

“We didn’t know what was going to happen to public health spending and police spending in these cities if there was a second wave,” he said.